How the shilling performed in 2025, what to expect in 2026

The Kenyan shilling closed 2025 as a currency shaped by contrasting forces at home and abroad.

Over the year, it remained largely stable against the US dollar, while weakening against the euro and the British pound.

The result was a mixed economic experience across sectors, households and markets, depending on where sellers, buyers and borrowers were positioned.

At the beginning of the year, the shilling was trading at about 129 to the US dollar. It weakened to about 139.7 against the euro and about 167.1 against the British pound.

Those figures carried real consequences where exporters earned more shillings for every euro or pound, they brought home. Importers paying for goods in those currencies faced higher local currency costs.

This split pattern stable against the dollar, weaker against the euro and pound defined much of the economic story in 2025.

By mid-year, the Central Bank explained why the shilling had remained stable against the dollar. The stability was linked to foreign exchange inflows from several sources.

The Central Bank Governor said the exchange rate had been supported by “diversified foreign exchange inflows from Diaspora remittances, offshore banks, coffee, and other export items.”

These inflows provided liquidity and reduced pressure on the reserves.

A market perception survey conducted in July showed that many businesses and financial institutions expected this stability to continue.

At least 77 per cent of bank respondents and 71 per cent of non-bank respondents expected the shilling to strengthen or remain stable.

The stability of 2025 was shaped by the memory of a challenging moment just one year earlier. In mid-January 2024, the shilling had crossed 160 against the dollar.

That episode marked a low point influenced by external pressures, shifts in global markets and foreign exchange shortages.

The experience left a lasting impression in financial circles and government offices.

In October, the Treasury publicly defended the state of the currency after some reports suggested that external assessments implied instability.

The Treasury argued that the shilling’s stability reflected improved market confidence and sound policy measures.

It responded to suggestions that the stability was forced or artificial.

The shilling’s resilience depended on remittances, export earnings and disciplined financial management.

At the same time, risks remained visible rising import demand, changes in global commodity prices and scheduled external debt service had the potential to introduce new pressure.

For Kenyan families and small businesses, the story of the shilling is not abstract. It affects the cost of cooking gas, school supplies, medicine, rent and transport.

A stable shilling against the dollar helped contain some imported inflation, but the weaker shilling against the euro and pound meant certain foods, electronics, clothing brands and medical supplies became more expensive.

Kenya’s shilling has remained stable through 2025, supported by rising foreign exchange reserves and favourable global market trends, according to independent investor Mihir Tahir.

He says the gradual build-up of reserves, despite the absence of significant dollar-denominated loan inflows, suggests deliberate action by the Central Bank of Kenya to strengthen the local currency.

Tahir says the movement of reserves this year is a signal of what is happening in the market.

“The fact that foreign exchange reserves have been increasing despite no significant FX loan inflows, it means that the central bank has been buying dollars in the open market. This has shifted currency dynamics in favour of the shilling,” he said.

“This means that the supply of dollars is skewed towards the shilling strengthening. There are more dollars in the market than importers require.”

He linked the trend to global shifts, especially the softening of the U.S. dollar in the months following US President Donald Trump’s re-election.

Tahir said the dollar’s weakness emerged as a result of many of his policies and the market sentiment that was created by his victory and forward policies as well.

Despite the shilling appearing stable, he noted that the reality is more complex.

“As opposed to the weakness of the dollar, the Kenya shilling staying stable means that in reality it has weakened on a global scale,” he said.

He pointed out that the currency has lost ground against the euro and British pound, though the domestic market shows no significant panic.

On May 16, Kenya moved to ease pressure on its external debt obligations by restructuring its 2027 Eurobond through a fresh issue in the international markets.

The government raised US$1.5 billion, equivalent to about Sh194 billion, in a new Eurobond managed by Citi and Standard Bank.

The proceeds were directed toward buying back part of the US$2 billion Eurobond that was scheduled to mature in 2027.

Through the transaction, the Treasury repurchased US$579 million, representing about 64 per cent of outstanding bondholders who accepted the buyback offer.

Officials said the move was aimed at reducing short-term refinancing risks and smoothing out Kenya’s external debt repayment profile.

The newly issued bond carried a 9.50 per cent coupon and was priced at a 9.95 per cent yield. It matures in 2036 and will be repaid in equal instalments over the final three years, giving it a weighted average life of 10 years.

Treasury officials said the structure aligned with the government’s Medium-Term Debt Strategy, which aimed to extend maturities and limit exposure to large, one-off bullet repayments.

The successful issuance was viewed as a positive signal of investor confidence, coming at a time when Kenya’s total public debt had reached Sh11.02 trillion by March 2025, up from Sh10.5 trillion the previous year.

The government said the restructuring was necessary to stabilise external financing needs and preserve market access as global borrowing costs remained relatively high.

Treasury officials described the deal as a clear vote of confidence from international investors, citing the 64 per cent participation rate in the tender offer and the ability to upsize the issuance as indicators of Kenya’s renewed credibility in global markets.

“This transaction underscores Kenya’s commitment to prudent fiscal management and sustainable debt service. It reduces near-term refinancing risk and positions the country to pursue its economic transformation agenda with greater financial stability.” said Citibank Kenya Managing Director & CEO Martin Mugambi.

The two financial institutions previously played a role in reintroducing Kenya to global capital markets following a three-year hiatus.

“This deal reaffirms Citi’s role as a trusted advisor in supporting sovereign access to international capital. It also highlights our ongoing commitment to Kenya’s development and economic growth,” added Mugambi.

Stanbic Bank Kenya and South Sudan, CEO Joshua Oigara, said the successful Eurobond issuance was to to strengthen Kenya’s fiscal position, reassure markets, and maintain access to external financing on sustainable terms critical as the country navigates global uncertainties and pursues ambitious development goals.

“Strong investor demand reflects confidence in Kenya’s fundamentals and strategic direction. Standard Bank remains committed to supporting Kenya’s economic transformation by delivering innovative financial solutions.”

The National Treasury Cabinet Secretary John Mbadi underscored the urgency of implementing effective debt management tools to curb future fiscal vulnerabilities.

In October 2025, The National Treasury assured Kenyans that the shilling remains stable, contrary to media reports that suggested concern from the International Monetary Fund (IMF).

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The reports, they said, misrepresent the IMF’s position and have sparked unnecessary public debate about the country’s exchange rate stability.

A senior Treasury official clarified that Kenya’s exchange rate is market-driven, backed by solid economic fundamentals and transparent policies that reflect real supply and demand conditions in the foreign exchange market.

On the contrary, the IMF noted that the shilling’s stability since early 2024 follows a period of volatility and signals renewed investor confidence, improved liquidity, and disciplined fiscal and monetary management.

The reserves have been boosted by steady remittance inflows, a strong rebound in tourism, and rising exports of tea, horticulture, and manufactured goods.

The Central Bank of Kenya (CBK) has continued to operate a flexible exchange rate regime, intervening only to curb excessive volatility.

This, Treasury said, is in line with global best practices and reflects CBK’s commitment to letting the market determine the shilling’s value.

Officials attributed the calm in the forex market to reforms that made it more transparent and efficient.

The Kenya Foreign Exchange Code improved governance among market players, while the full liberalization of the interbank forex market earlier this year increased competition and transparency ensuring rates are based on real transactions rather than speculation.

Looking ahead to 2026, Tahir says global monetary policy will be an important factor. The U.S. dollar may begin to strengthen, though he believes the likelihood remains low for now.

“The dollar might start strengthening, but it’s unlikely given that rate cuts are still legislated to continue next year. If the weakening dollar trend continues, the shilling could stay stable or also strengthen,” he said.

Tahir says Kenya’s best defence against a future shift in currency pressure is prudent management of reserves and steady leadership.

The first step is to beef up reserves. The second, he noted, is ensuring that the political environment, the economic environment is stable to prevent panic selling of the shilling.

He warned that external shocks could still disrupt the shilling’s path adding that global oil prices remain the biggest risk.

“If oil prices spike due to unrest in the Middle East, then we could see a faster weakening of the Kenya shilling than expected,” he said.

He added that the key threats remain oil prices, political instability locally, and the dollar strengthening because of U.S. policy.